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Broad-Burkle bid for Tribune likely to remain in play

The media company is expected to withhold a response to the two billionaires' offer, which expires today.

January 24, 2007|Thomas S. Mulligan | Times Staff Writer

The bid submitted for Tribune Co. by billionaires Eli Broad and Ron Burkle expires this afternoon, but people familiar with the auction say they expect the Chicago-based media company to withhold a response for now while encouraging the pair to stay involved.

"I don't think you're likely to see the board say 'no' to anybody at this point," said a financial professional who had followed the process closely but asked not to be identified because the bidding was confidential.

Tribune declined to comment, although Chief Executive Dennis J. FitzSimons reiterated in an e-mail to employees Monday that the board expected to make a decision by March 31.

A major Tribune investor said last week that he found the Broad-Burkle bid to be attractive because it would involve an immediate $27-per-share cash dividend plus an infusion of $500 million in capital from the two entrepreneurs. Broad and Burkle valued their offer at $34 a share, they said in a letter dated last Wednesday to Tribune advisors that was reviewed by The Times.

The two billionaires have said nothing publicly and did not return phone calls Tuesday. However, experts said the deal appeared to be structured similarly to Burkle's 2005 investment in the struggling supermarket chain Pathmark Stores Inc.

Tribune, corporate parent of the Los Angeles Times, KTLA Channel 5, the Chicago Cubs baseball team and other newspapers and TV stations, also received bids last week from its biggest shareholder group, California's Chandler family, and from the New York-based private-equity firm Carlyle Group. The $4.7-billion Carlyle bid is only for Tribune's broadcast division and the Cubs, said a person familiar with the offer.

The Chandlers, in a letter to Tribune advisors that was filed with regulators last week, said their offer was worth $31.70 per share -- a tiny premium over the current stock price. The broadcast division would be spun off to shareholders in a deal valued at about $4.2 billion, and they also would be paid $19.30 a share in cash for the newspapers.

Although the Chandlers did not spell out their plans in their letter, they are expected to later sell the newspapers, which include The Times, the Chicago Tribune, New York Newsday and eight other papers.

Rupert Murdoch's News Corp. has thrown in with the Chandlers, agreeing to take a minority stake in their deal, according to a News Corp. insider who spoke on condition of anonymity because he had not been authorized to discuss the situation. Under the deal, News Corp. -- owner of the Fox TV network, cable's Fox News channel and the 20th Century Fox studio -- would get an operating agreement allowing it to cut costs by combining certain noneditorial operations of Newsday with those of its own New York Post.

People at News Corp. are doubtful that the agreement will come to fruition, the insider said, explaining that animosity between Tribune's top brass and the Chandlers makes the family's bid a long shot.

The Chandlers, who own 20% of Tribune, started the ball rolling toward an auction last summer by criticizing Tribune management and calling for the company to be broken up or sold.

Burkle, a contributor to the Democrats who has former President Clinton on the payroll of his Yucaipa Cos., made his fortune by buying and consolidating supermarket companies on the West Coast. His first East Coast foray came in March 2005 when he struck a deal to invest $150 million in Carteret, N.J.-based Pathmark in exchange for a 40% ownership stake.

Pathmark, with about 150 stores mainly in New York, New Jersey and Pennsylvania, had been on the block for months, attracting little bidding interest. The chain was a perennial money loser and had been in and out of Chapter 11 bankruptcy proceedings. Although Pathmark's sales have not rebounded and it still loses money, investors seem to believe in a turnaround: Its stock is up nearly 150% since Burkle made his surprise investment.

The Broad-Burkle bid for Tribune resembles the Pathmark deal in that they seek a minority stake rather than an outright purchase and that they would receive not only common shares but also warrants giving them the right to raise their stake if the stock price rises.

Broad and Burkle would take an initial stake of just under 20% of Tribune, but the warrants would give them the potential to increase their ownership to 34%, according to people familiar with their bid.

By keeping their initial stake below 20%, Broad and Burkle could avoid having to put their deal before Tribune shareholders, according to a securities lawyer who asked not to be identified because he had not seen the actual terms of the offer.

Under stock market rules public companies can't dilute their stock by more than 20% without a shareholder vote, the lawyer said. If the billionaires later exercised warrants to raise their holdings, a shareholder vote would be triggered, he said.


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